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The Arizona Senate has passed a bill that would allow state residents to pay their taxes in cryptocurrency

Senate Bill 1091 still needs to pass in Arizona’s House of Representatives, but the fact a bill like this has passed in the Senate is unprecedented in the US. Under the bill, the Arizona Department of Revenue would convert the crypto tax payments into US dollars within 24 hours.

Fiat & Taxes

Ok, great, so Arizona is open to experimenting with crypto. So what? Why does it matter, especially if Arizona would just immediately convert the crypto to dollars?

Because there are convincing arguments that what makes fiat money valuable as “fiat” is the fact it’s the only currency the government you live under will accept for tax payments.

If you want to live in the US (and would like to not spend your life on the run for tax evasion…), your only option has been to pay taxes in US dollars. Every resident in the US (...ok, residents that don't just use demo accounts...) has needed US dollars, and that "demand" gives the dollar value.

But now Arizona may begin accepting cryptocurrency.

It’s unlikely the federal government will accept crypto for taxes, but states may increasingly do so. And as they do, crypto will see more mainstream demand.

And on an international scale, the Swiss municipalities Zug and Chiasso have already decided to accept tax payments in crypto.

Strong Messages

Arizona’s move sends a few other strong messages.

First, Arizona wants to be crypto-friendly. We may see mining friendly legislation in the works (e.g., subsidies for cryptocurrency startups, tax breaks for mining in the state, etc.). In fact, one of the co-sponsors of the bill, Representative Jeff Weninger, has explicitly said he wants to turn the state into a center for blockchain and crypto.

Second, this sends the message to other states that crypto is not something to be feared, but embraced. As a few states start to lead the way in accepting crypto (for taxes, or more generally), it will likely have the effect the legalization of marijuana has had. That is, other states will see the absurd revenue and economic growth it can bring and we'll start to see states compete for who is crypto-friendliest.

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